Risk management, portfolio growth key to planning for later retirement

Some seniors continue working past retirement age just to stay active but many do so out of financial necessity, financial advisers say. (Suzanne Plunkett/Reuters)

More Canadians are choosing to work for a longer part of their life than their predecessors did, and while that choice definitely has its drawbacks, the impact on one's retirement finances is generally positive, financial advisers say.

Canadians are working at least two years longer than workers did just a decade ago, Statistics Canada figures suggest. The median retirement age in 2011 was 63.2 for men and 61.4 for women, compared to 61.3 and 59.9, in 1997.

The median retirement age has been steadily increasing since the late 1990s, a time when the public sector was urging workers to retire early in an effort to cut payrolls, and analysts say there is plenty of anecdotal evidence to indicate the upward trend is continuing.

"In 1997, the public sector was offering early retirement packages for a lot of people. Now, we're seeing that trend reverse," said Larry Moser, a sales manager for BMO Retail Investments in Toronto.

"The longer people work, the higher your pension is going to be. And when you retire at 60, Old Age Security and Canadian Pension Plan don't kick in until 65 (unless you are willing to pay a penalty for collecting CPP early). So, you may not have as much money as you had hoped."

For most people, the decision to delay retirement is one of necessity, but other factors do play a role.

"Some people really enjoy working and just want to stay active," Moser said.

Other reasons for the upward creep in retirement age include better health care, longer life expectancy and the changing nature of work, which is less physically strenuous than it used to be.

Keep it simple

With life expectancy increasing, retirement can now last 25 to 30 years, so your 50s are probably the best time to start planning, say advisers.

"You're going to want look at your asset base and your investments," Moser suggests. "Risk management is very important at this point, because you need to have some fixed income to protect your assets. Older people still need to have some growth in their portfolio."

"Be informed about the investments in your portfolio and ask yourself: Would I buy it again today? What's it doing in my portfolio? If you can't answer all those in the positive, then you need to revisit it," Mastracci says.

Jim Yih, an Edmonton-based financial educator and blogger, agrees.

"Most people pick a few investments, then don't really do anything after that," he said. "Be aware of how much risk is in your portfolio the closer you get to retirement — and whether your investments are ready.

"I know some people who have had to delay retirement because their portfolio dropped. There's a big difference between investing for retirement and investing in retirement."

Global trend

In Canada, the government has already signalled its intention to make later retirement the new normal. It increased the eligibility age for Old Age Security benefits from 65 to 67 by 2029 in its 2012 budget and pushed back the age at which MPs and public sector workers can start collecting government pensions — from 55 to 65 for MPs and from 60 to 65 for civil servants.

The trend toward later retirement can also be seen across the U.S. and Europe, where the choice to work later is also most likely economically driven.

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In the U.S., the average retirement age has climbed over the past 20 years — to 64 from 62 for men and to 62 from 58 for women.

"The trend for retiring later has been somewhat offset by the recession," said Steven Sass from the Center for Retirement Research at Boston College. "People have a reduced savings, which entices them to stay in the workplace longer."

In the U.K., the average age at which men stopped working rose from 63 in 2004 to 64 in 2010. The average retirement age for women rose from 61 to 62 in that time, according to data from the Office for National Statistics.

And with the British government set to increase the qualifying age for state pensions over the next few years, the figures are likely to keep rising.

"These trends indicate that working past the state pension age is increasingly becoming part of our way of thinking," said Joanne Segars of Britain's National Association of Pension Funds. "For many, working longer is a must because they have not built up enough funds to be able to retire."

Germany raised its retirement age from 65 to 67 about six years ago and is currently considering delaying the eligibility age for full pension payments to 69.

In Greece, meanwhile, workers can take early retirement at 58, although in a recent move to keep the pension limit consistent with Greece's creditors, the finance ministry increased the normal retirement age from 65 to 67.